Thursday, November 5, 2009

Zynga Gets No Respect: Welcome to the Club Edition



The great American hero is the entrepreneur who can grow a big business from nothing. The great American pass time is tearing down the great American heroes. We should all feel sorry for the hero who builds a game company. The most painful truism of being in the game business is how easily and often we are attacked. No one admits to playing games and the mainstream perception is of a bunch of geeks, sitting in our mother's basements, playing with ourselves in front of a bunch of glowing screens. While the growing audience and mainstream migration belies the stereotype, the attacks continue. It is just too easy to look at games as a vice and tar the entire industry, or in this case, a segment, as bad, because no one really cares. But really, "If you prick us do we not bleed? If you tickle us do we not laugh? If you poison us do we not die? And if you wrong us, shall we not revenge?"

Most recently, Michael Arrington of Tech Crunch decided to take a very common fraud and frame it as a core component of one of the most successful game companies in recent memory. He cutely referred to the games as "Scamville" and called the category a bubble. It is one thing for him to write this type of thing for his techy audience on Tech Crunch, but it is another thing entirely when it gets picked up in the mainstream on the Washington Post. The Post readers believe him. They think he speaks with authority and knows what he is talking about. I feel for them - and us.

In reality Arrington discovered there are bad people in the world who will take advantage of others for their own benefit. These people will trick people into providing a method of payment and continue to bill the shill until the affirmatively cancelled. The scam is not new, and depending on the size of the fine print, it is not even a scam. It's called a continuity program and it is employed by everyone from Girls Gone Wild to Proactive Skin Care. When the programs take the form of a subscription they range from difficult to terminate - try finding how to end your World of Warcraft account - to nearly impossible - try terminating an AOL account. Mr. Arrington points to some unscrupulous lead gen companies who feed the continuity programs by hiding the continuing commitment. Yes they are unscrupulous and certainly insidious, but they are no more enabled by Zynga than they are by email. Nor does their relationship with Zynga constitute an ecosystem. They are merely parasites.

Arrington's argument is pretty simple. The press is lauding companies like Zynga for building a very profitable company very quickly but Zynga deserves no praise. A portion of Zynga's revenue is generated from abuse of lead gen clients by bad lead gen companies and the money paid by these companies goes into more lead gen opportunities to further defraud consumers. Therefore the social game industry is built on a bubble and should go away. But the argument is flawed on many levels. The first, is the implied significance of lead gen revenue. Zynga has repeatedly broken down their revenue as one third virtual goods, one third traditional advertising, and one third lead gen. With annual revenue estimated between 150 million USD and 250 million USD, complete removal of lead gen revenue would still leave a company with 100 to 170 million USD in revenue - still quite impressive and not really bubbly. He doesn't stop there though. The major flaw is ascribing culpability to Zynga for actions of its sponsors or clients. Granted, the combination of the lead gen and continuity markets is an ugly marriage, but counter to Arrington's argument, Zynga is not the bastard child of the union. It is merely the parasite's host. The logical extension of this argument is magazines should be shut down for running continuity program advertising, network television should be shut down for selling infomercial time, ISP's should be shut down for allowing all those viagra and ringtone emails and of course, don't forget Google who gets paid to entice you to click on sponsored links.

Just look at it in his words:

The reason why I call this an ecosystem is that it's a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users.

Here's the really insidious part: game developers who monetize the best (and that's Zynga) make the most money and can spend the most on advertising. Those that won't touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen.

The games that scam the most, win.




He is blending the lead gen revenue with the ability to spend dollars on marketing. This is simply not the case. As I said, lead gen is only a portion of the revenue, but more significantly, the viral nature of the games means the bigger games get bigger more quickly than the smaller games. Like every other industry, the number one player is bigger than the rest of the top 10. Remember Lycos and Excite? Moreover, Mr. Arrington is only describing what we in the real world like to call "marketing" not an "ecosystem." The only ecosystem is the lead gen company and the shill. Nothing about the relationship is unique to Zynga. I challenge Mr. Arrington to spend a day without being approached by a similar lead gen opportunity - even if he turns off the computer. Check your mailbox on the way out the door. There is most likely a credit card offer in the form of a check or balance transfer opportunity. Endorse the check and you now have a credit card. Transfer the balance at 0 interest and you will be looking at increased fees down the pike. Put that one down and the next piece of mail is a refinance offer. Sign this agreement and we will lower your interest rate - the fine print tells you it is only for a few months. Now go to a store to pick up some clothes. At checkout the kind sales person asks "Would you care to sign up for the GAP, Neiman Marcus, J Crew or wherever credit card today and save 10% on your purchase?" Sure. You just signed up for a high interest rate credit card which will at least temporarily impact your credit score and possibly carry an annual fee. My guess is Mr. Arrington doesn't fall for these things because he is not a dipshit - just like the majority of the people playing the Zynga games.

The people playing the games are sophisticated enough to sign up for facebook and have an email account, which pretty much means, they've seen their share of fraudulent viagra offers. Sure some Zynga players may still be trying to collect the money on behalf of the dead African leader, but if those people fall for it, they deserve it. For the most part, these offers burn themselves out. You can't cheat an honest man. Mr. Arrington acknowledges as much:

And some users aren't dumb, either. For every user who gets tricked into some fake mobile subscription, there's another who can beat the system. That's where the legitimate advertisers, like Netflix and Blockbuster, get hit. Users sign up for a free trial with a credit card, get their game currency, then cancel the membership and start over. Netflix has a policy of only paying for a user once. But game developers use a complex set of partner chains to launder these leads and try to get them through for payment. Netflix sees an overall lowering of quality and pays less for leads. Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference. In the end, the decent advertisers are out, and only the worst of the worst remain.


This is exactly the point. The perfect flow of information on line allows the Web 2.0 companies to self right very quickly. If Netflix and Blockbuster find they are getting gamed - pun not entirely unintentional - they will stop paying Zynga bounties. Therefore, being complicit in the alleged scam is against Zynga's interest. If the offers migrate to the less desirable scam type offers he suggests, the consumers will no longer participate. The value of the object gained is less than cost of the commitment to the continuity program. It is just that simple.

Arrington waits until the end of his post to address the real issue. He points to his public attack of a company he characterizes as unscrupulous. Sadly, he did not put their name in the title, he did not write most of the article about them, and he only mentions them as the actors with mal intent in a single paragraph. Why? Probably because Mr. Arrington generates revenue through attention. A headline snappy enough to draw a reader to his page, or the Washington Post to reprint it. I guess that makes it a lead gen device designed to capture folks so he can generate revenue through traffic, which he will invest in more content, advertising and events, which generate more hyperbolic headlines, which generate more readers going to his site. . . . . .





2 comments:

Jason said...

The only real problem I have with Zynga is that they are obviously doing no policing of those lead gens. If they truly do not rely on them for revenue, they should have no problem with shucking the ones that are clearly "scams" (billing people and providing them with no service). Instead they point to Netflix, say everything is fine, and shuck the responsibility. Why pass the buck when you can afford not to?

Anonymous said...

I didn't even know who Zynga was until they fraudulently billed me for $200 and then said that it'd take 7-15 days of them having my cash for them to investigate. At day 4 so we'll see who's the shamster.